On September 15, 2009, Stratos Government Services, Inc. (“Stratos”) filed a Petition for Clarification or Declaratory Ruling (“Petition”) with the Federal Communications Commission‘s (“FCC” or “Commission”) Wireless Competition Bureau (“WCB”). In its Petition, Stratos requested that the WCB insert certain clarifying language into a 1997 rulemaking, which was issued as part of the implementation of universal service provisions of the Telecommunications Act of 1996. The 1997 Rulemaking established an exemption from Universal Service Fund (“USF”) contribution requirements for service providers provisioning interstate telecommunications services exclusively to public safety or government entities.
Stratos explained that there currently exists a degree of uncertainty as to the USF obligations of sub-contractors because the Rulemaking failed to address whether the exemption is limited in application to “prime” contractors that sell directly to governmental entities or whether it also includes “sub” contractors providing telecommunications services exclusively to public safety and government end-users through prime contractors. Stratos asked the Commission to clarify that the exemption applies to both “prime” and “sub” contractors by adding language to the 1997 Rulemaking‘s exemption. In support of its request, Stratos argued that limiting the exemption to prime contractors would contradict the public interest because it would result in sub-contractors passing USF fees through to each of their public safety and government end-users, not only to the prime contractors to whom they sell. Further, Stratos noted that the use of sub-contractors helps achieve the goal of reducing costs, which benefits the governmental end-users and taxpayers.
In its Petition, Stratos recognized that in order for the exemption to operate as intended by the Commission, the sub-contractor would face losing the exemption if its prime contractor sold the services to non-governmental end-users. Thus, Stratos acknowledged that the relevant sub-contracts should explicitly limit prime contractors reselling services purchased from sub-contractors to providing services to government entities or public safety entities. Stratos asked for expeditious treatment of its Petition, which remains pending before the Commission.
The issues raised in Stratos‘ Petition are analogous to concerns about the impact of the Universal Service Administrative Company‘s (“USAC”) Instructions to FCC Form 499-A which result in the imposition of “indirect” or pass-through USF fees on otherwise exempt providers. That is, because the FCC treats non-contributing resellers as end-users and allows underlying carriers to pass USF fees through to their end-user customers, resellers that are exempt from direct contribution requirements can nevertheless experience significant USF obligations in the form of indirect pass-throughs. The Ad Hoc Coalition of International Telecommunications Companies (“Coalition”) addressed this issue in two petitions for declaratory rulings that are currently pending before the Commission. In its petitions, the Coalition stressed that USAC cannot accomplish indirectly that which it is prohibited from accomplishing directly. In other words, USAC lacks authority to indirectly assess fees on carriers exempt from direct contribution under the FCC‘s rules.
We recommend that clients monitor this proceeding. A copy of the Petition is available in WC Docket No. 06-122. Likewise, clients may wish to monitor the Ad Hoc Coalition‘s pending petitions before the Commission, also in WC Docket No. 06-122, to learn more about the debate on USAC‘s inequitable application of its Form 499-A instructions.
Clients with questions or concerns regarding this Advisory should contact Jonathan S. Marashlian at firstname.lastname@example.org or (703) 714-1313.